Movable Clouds Migrate To Chase Tax Breaks

1sockchuck writes "State legislators have been offering huge tax incentives to attract data center projects from cloud-builders. But what happens if the political climate changes and the tax break disappears? If you're Microsoft, you can just take your cloud and move it someplace else. The infrastructure for the Windows Azure platform is being migrated out of a facility in central Washington after the state ruled that data centers no longer qualify for a tax exemption on equipment. Mike Manos, a key player in site selection for many major data centers, predicts that future cloud platforms will move often to chase lower taxes or cheaper power."

Comments

Responsibility to society or shareholders?

[BadAnalogyGuy]

When you decide to skirt tax laws, you are able to directly benefit from the greater net income at the end of the day. Shareholders of companies that skirt tax laws benefit greatly because of the greater net revenues. So it seems that everyone should be happy, right? More money to the private sector and we (the private sector) know how to best spend our money.

But what about social services that are necessary to protect the least among us? Rousseau described a social contract which requires each citizen to give up some rights in order to preserve order and safety. John Rawls describes a theory of social justice which demands a safety net which can protect those who are the most unfortunate, at the cost of additional taxes on those most able to pay.

Aren't these companies who take advantage of these ethically questionable tax shelters 1) not paying their fair share to support the social safety net, and 2) putting the onus on the individual citizens/employees who cannot easily move to tax-free states?

Re:Responsibility to society or shareholders?

[cryfreedomlove]

The best social contract is one that creates jobs for the 'least among us'.

In general, I agree with you but I have come to realize that there really is no corporate tax that is not simply passed on to consumers in the form of higher prices. I'd prefer no corporate tax at all, accompanied by the individual flat tax with no allowable deductions. Simple, clear, enough to fund the social safety net.

Re:Responsibility to society or shareholders?

[PPH]

Rousseau described a social contract which requires each citizen to give up some rights in order to preserve order and safety.

Fine. But the terms of the contract were changed. Unilaterally. The state offerd tax incentives to attract business and then withdrew them once the business is up and running. Why not just charge the going tax rates from the outset?

For every company that has the foresight to use portable infrastructure, there are hundreds that have sunk costs and can't afford to move easily. But they serve as warnings to other potential investors as to the ethics of the particular jurisdictions that they are considering. Companies avoid that state and the population suffers, not only from a lack of funding for social services, but a lack of jobs.

Re:Responsibility to society or shareholders?

[Robin47]

Aren't these companies who take advantage of these ethically questionable tax shelters ...

I actually went back and RTA thinking I missed something. I'm still scratching my head trying to think of a way this can be characterized as "ethically questionable tax shelters". No one is doing anything ethically challenged here except maybe the government trying to change the deal to generate a new revenue stream. Yeah, Microsoft, sit there and take it.-Not! I can't blame them in the least.

Re:Responsibility to society or shareholders?

[zippthorne]

Yeah, that'll really encourage businesses to establish operations in the first place.

There are a few basic principles which I wish people, especially politicians would take into account when setting up these things.

1. The Laffer Curve. It's certainly more complicated than that, but the basic argument that there is a maximum revenue possible at some optimum tax rate shouldn't be simply scoffed at and ignored. Further, the more general idea is that, for any given level of required revenue (below the maximum, wherever it may lie), if there is more than one level of taxation which would generate that revenue, it is immoral to choose the higher rate, as it needlessly restrains the activity which lifts everyone's standard of living.
2. If you want to play social games, have higher taxes on things you want to discourage and lower taxes on things you want to encourage now. If you change your mind later, don't be surprised or upset when people doing those things decide to move somewhere where the state wants those things done.
3. Don't demonize people or organizations for taking advantage of your tax structure to minimize their taxes. You had lower taxes on certain things because you wanted to encourage that behavior, didn't you?
4. No special cases. There is too much opportunity for graft if your politicians can make special deals on an individual basis and claim credit for those very visible jobs. If the deal is good for one company, it's good for every company. Make that the policy.

Your plan is every bit objectionable as the cable company's sleezy "super low introductory rate for six months, with unspecified but much higher rate for the remainder of your twenty-four month commitment." Except that when the government does it, there are guns or the threat of guns involved.

Basic economics

[Hawthorne01]

Businesses treat taxation as damage and go around it. Or something like that.

Re:Corporations externalize costs

[XanC]

Not that I am at ALL a fan of these sweetheart deals, but isn't it the government that's reneging here, not the corporation?

Tax entities will get wise to this

[davidwr]

Taxing entities will continue to give tax breaks, but there will be strings attached. Instead of "10 years with favorable tax status if you keep $x in local payroll during those 10 years" it will be "10 years with favorable tax status if you keep $3x in local payroll during the following 30 years, adjusted for inflation, with penalties and the ability to recapture the taxes if you default."

What does this have to do with "the cloud"?

[argent]

It's the equipment that's being taxed... or not... not the data on them. Moving servers around doesn't get cheaper or more expensive because they're serving Azure or Halo... you still have to move the physical boxes and the people maintaining them.

Unless by "the cloud" you mean "anything you can run in a colo". But that's kind of diluting the term to the point of meaninglessness, isn't it?

Nothing new here

[Robert1]

This is a basic business fact, has been known for decades, and is one of the big reasons why people are justifiably against increased taxes.

It happens on every level of government - city, county, state and finally country. Tax increases at any of these levels tend to drive away businesses, lower taxes and incentives draw them in. The only thing that makes this news-worthy is that cloud-computing is a fairly new industry. Surprise, surprise they react to taxes like any other business.

Of course, every level of government NEEDS taxes, but tax increases to pay for various social services ultimately have to be finely balanced between driving away business with the need for those services. Heavily taxing business to provide for such services helps the community in the short term, but drives away the business and hurts the community through job loss in the mid to long term. Did the social service help the community greater than the loss of the jobs hurt it? There-in lies the delicate balance that is illustrated by the issue of taxes and business migration. Again, nothing new.

Re:Corporations externalize costs

[MightyYar]

It was created to protect the corporate officers from liability

Which in turn benefits society. Who in their right mind would make a commercial aircraft if they weren't shielded from liability?

Just another storm on the horizon...

[bschorr]

So while Cloud providers are moving their clouds around for the best deal...what restricts them to hosting in the USA at all? And therein lies one of the fundamental problems with cloud computing for company data. I can think of a number of countries in the world where I would *NOT* want my confidential company data stored and some of those countries might be pretty attractive to hosting providers.

Their sales guys can talk all they want about how wonderfully secure the whole thing is, but if my data physically resides on servers in unfriendly or unstable countries that's all just a lot of hot, moist, air, moving in from the northwest ahead of a low pressure system...

Re:Corporations externalize costs

[Iyonesco]

"We pay for the power setup, the roads, the police force-- they pay none of these costs"

Firstly, "they" pay 40% corporation tax - the second highest in the world. What more do you want? Do you really want to see the total collapse of the US economy as corporations buckle under an even heavier tax burden?

Secondly, who are "they"? A corporation is composed of three groups of people - employees, shareholders and customers. In reality "they" is in fact you, me and everyone else here and it's us who pays the costs of higher taxes on corporations.

If you tax a corporation the money has to either come from raising prices, cutting the workforce or taking a hit and suffering a reduction in share value. In all of these situations it's the public who pays the cost, either through higher prices of goods and services, losing their job or a suffering a reduction in the value of the shares in their retirement account.

When corporations get taxed it comes out of your pocket and it's you that suffers. Quite why you'd want to see them taxed more I don't know.

Hypocrits

[Anonymous Coward]

I find it ironic that corporations like Microsoft are being criticised for openly lobbying State governments for tax exemptions by a community of people who are extraordinarily likely to buy things off of the internet and simultaneously claim that they have never heard of a "use tax" (or simply refuse to pay it). Bravo to the 95% of you who are tax cheats. Apologies to the 5% who actually paid.

Terminology

[michaelmalak]

Here's hoping that this "cloud" terminology goes the way of "mashup". "Server farm" and "data center" refer to specific concrete entities. Labeling a data center as a "cloud" does not give it magical capabilities. "Cloud" used to refer to the peer-to-peer nature of the Internet. Now it's being applied to servers from the old client/server days. Talk about complete perversion.